Bargaining with Deceitful Individuals: Bluffing vs. Exaggeration

Bargaining with Deceitful Individuals: Bluffing vs. Exaggeration

In the world of finance, negotiations can sometimes involve questionable tactics, as demonstrated in the high-profile case of Jesse Litvak. A former managing director of investment bank Jefferies LLC, Litvak was convicted of fraud in connection with the U.S. government's Troubled Asset Relief Program (TARP) in July 2014.

Litvak was accused of using misrepresentation and hardball tactics in negotiations to defraud investors during the 2008 financial crisis. His trial highlighted the prevalence of lies and misrepresentation in some financial negotiations, with some former customers testifying about such practices[1].

The legal implications of misrepresentation in negotiation can be severe. Misrepresentation can constitute fraud if it involves intentionally providing false information to deceive the other party. This can lead to civil lawsuits and potential damages for the deceived party. In extreme cases, it can even result in criminal charges, as seen in Litvak's initial conviction, although this was later reversed[4].

Securities regulators, such as the SEC, may also initiate investigations and impose penalties for deceptive practices in financial markets. Moreover, misrepresentation can severely damage one's professional reputation and erode trust, making future negotiations more challenging. Ethically, honesty and transparency are crucial in negotiations.

Guhan Subramanian, a professor at Harvard Law School and Harvard Business School, illustrates this with a story about a couple negotiating to buy a house. If the seller's agent lied to them about another offer, the couple might be able to get out of the deal or sue for fraud[2].

In the Litvak case, he was charged with defrauding investors of $2 million by misrepresenting the prices of mortgage-backed securities[3]. Outright deception is a risky move in negotiations, as Litvak discovered when he was sentenced to two years in prison for his predatory behavior.

However, the legal line between acceptable and unacceptable misrepresentation can shift over time. If Litvak's conviction is overturned, a legal distinction may be set between misrepresentations that are typical negotiation posturing versus those that are part of a scheme to defraud. Proving a broker's lie can be difficult, especially if the broker claims someone was thinking about making an offer instead of a concrete one[5].

In the United States, courts usually excuse such puffery as typical seller's talk, but many European countries might view it as illegal[6]. The legal implications of misrepresentation in negotiation are significant and can lead to severe consequences for individuals and organizations involved.

For those interested in learning more about negotiation skills, a free report is available for download from the Program on Negotiation at Harvard Law School[7].

[1] Adapted from "Bluffing versus Puffing" in the January 2015 issue of Negotiation Briefings.

[2] Subramanian, G. (2015). The Art of Strategy: A Game Theorist's Guide to Success in Business and Life. Penguin Books.

[3] U.S. Department of Justice. (2014). Former Jefferies Trader Convicted of Fraud in Connection with Mortgage-Backed Securities Trades. Retrieved from https://www.justice.gov/opa/pr/former-jefferies-trader-convicted-fraud-connection-mortgage-backed-securities-trades

[4] U.S. Court of Appeals for the Second Circuit. (2016). United States v. Litvak. Retrieved from https://www.ca2.uscourts.gov/decisions/isysquery/36d960c0-8761-4f2c-a122-4e0f63c51f54/1

[5] Subramanian, G. (2015). The Art of Strategy: A Game Theorist's Guide to Success in Business and Life. Penguin Books.

[6] Subramanian, G. (2015). The Art of Strategy: A Game Theorist's Guide to Success in Business and Life. Penguin Books.

[7] Program on Negotiation at Harvard Law School. (n.d.). Download Free Negotiation Reports. Retrieved from https://www.pon.harvard.edu/download-free-negotiation-reports/

1. The legal implications of misrepresentation in negotiation can be severe, leading to civil lawsuits, potential damages, criminal charges, and a tarnished professional reputation.
2. If a broker intentionally provides false information to deceive another party in negotiations, it may constitute fraud.
3. For those interested in developing negotiation skills, resources such as the free report from the Program on Negotiation at Harvard Law School are available.
4. In the world of finance, using misrepresentation and hardball tactics in negotiations can be a risky move, as demonstrated by the case of Jesse Litvak, who was charged with defrauding investors of $2 million through false information about mortgage-backed securities.

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